Greetings, and welcome to Nutrien's 2020 Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Would now like to turn the conference over to Richard Downey, VP of Investor Relations.
Please go ahead.
Thank you, operator. Morning, everyone, and welcome to Nutrien's conference call to discuss our third quarter 2020 results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien, Mr. Pedro Barra, our CFO and the heads of our 3 business units.
As we conduct this conference call, various statements that we make about future expectations plans and prospects contain forward looking information. Certain material assumptions were applied to making these conclusions and forecasts that our actual results could differ materially from those contained in our forward information. Additional information, both these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report and DNA and annual information form filed with Canadian and U. S. Security conditions to which we direct you.
I will now turn the call over to Mr. Chuck Nacro.
Thanks, Richard, and good morning, everyone. First off, I hope you and your families are all safe and healthy. While most companies and industries have seen an impact to their business due to the COVID-nineteen pandemic, agriculture has been more resilient than most. And is now demonstrating real strength as we head into 2021. This underscores the consistent growth in global food demand even through a global economic and health crisis.
The fall application season is well underway across the U. S. As the harvest is ahead of normal. Crop prices have increased due to a combination of excellent global demand and lower than expected production resulting in strong grower margins. Furthermore, fertilizer affordability is high particularly for potash and nitrogen.
As a result, we are optimistic of the fall application season will be good, and we are also positive on the outlook. For 2021. Before turning to the overview of our third quarter results and the outlook, I'd like to provide contact context on the non cash impairment and tax benefit we recognized this quarter. Facilities in white springs in Aurora. This is based on our expectation for a challenging long term price outlook for phosphate, caused by structural over supply from low cost regions.
Our tax rate was lower than usual this quarter due to a combination of US legislation changes, the tax benefit of recognizing non cash impairments, and a shift in the mix of jurisdictional earnings. Retail Ag Solutions reported 13 percent higher EBITDA in the 1st 9 months, which included double digit growth in revenue and gross margin. We continue to deliver Our third quarter retail ag solutions EBITDA was down $28,000,000 over the last year due primarily to the weather related shift in earnings from Q2 into Q3 in 2019. The biggest variation was in crop protection and application services that were impacted by lower than expected US acreage, relatively low discretionary crop protection product spend and very low insect pressure due to dry conditions in the Corn Belt. These factors combined with supplier bundling programs created additional competitive pressure in the crop protection market this quarter.
However, on a year to date basis, our US crop protection gross margins and percentage margins are both higher this year. We also continue to report EBITDA of over $1,000,000 per US selling location and retail margins of nearly 10%. And significantly lower working capital over the past 12 months. In fact, retail inventory alone was reduced by over $400,000,000 during this quarter. Retail Ag Solutions in Australia and South America delivered additional $31,000,000 in EBITDA in the third quarter over the same period last year.
The integration of Ruralco continues to proceed ahead of plan, and we have now hit our original synergy target of $30,000,000. And we also expect to capture an additional $20,000,000 in synergies by the end of 2021, from this strategic acquisition. Uptake of our digital platform continues to exceed our expectations, and we have now surpassed $1,000,000,000 in online sales, nearly four times greater than the digital sales in all of 2019. New functionalities such as our digital seed recommendation and crop planning tools are also being rolled out this year. We will provide a virtual demonstration of our digital platform leading up to our November 30 investor update and we'll introduce new metrics to help illustrate the benefits of our leading digital tool for both our customers and for our business.
Moving to the sales and cost perspective were impressive again. Potash demand was strong in the third quarter, both domestically and offshore. Capitex is fully committed into early 2021, and our domestic order book is nearly full for the balance of this year. Our cash cost of production was $9 per ton lower than 2019, partly due to production efficiency gains. We do have maintenance turnaround scheduled at 3 of our mines in the fourth quarter, which will increase per ton cost and limit sales availability.
However, we still expect 2020 to be our best year from a cost perspective. For nitrogen this quarter, we reported excellent operating rates, lower costs and higher ag related sales volumes, largely associated with our summer fill program. However, nitrogen adjusted EBITDA was down 21% due to lower nitrogen prices and lower industrial and feed volumes due to reduced global industrial demand, largely associated with the impact of COVID 19. We made the difficult decision to indefinitely curtail production at our smallest ammonia plant in Trinidad because of uncompetitive gas costs. And we are now operating a clear line of sight on our potash and nitrogen businesses to the year end.
Our guidance is intact, and we have narrowed the annual adjusted earnings guidance. To $1.60 to $1.85 per share and our adjusted EBITDA guidance to $3,500,000,000 to $3,700,000,000. Now shifting to our outlook for the global crop input sector. Overall, the fundamentals for our business have strengthened over the past quarter. As the grain and oil seed supply demand has tightened significantly.
Corn and soybean prices have increased 25% to 30% over the past 2 months. U. S. Grower margins for key crops are up close to 50% compared to the previous 3 year average. And are the strongest they have been in many in other regions next year.
Prices of most major crops in China have increased significantly as a result of tight domestic applying demand fundamentals, particularly for feed grains as the hog herd quickly recovers from African swine fever. We believe the increased demand for both Chinese feed and food is structural, and we expect elevated grains and oilseed imports into 2021 and beyond that. Record crop prices in Brazil are expected to boost summer soybean and safrinha corn planting by around 5 percent, while planting was delayed by dry weather, farmers have made significant progress in recent weeks. Grower sentiment is extremely strong and underscores why expanding our business in Brazil is strategically important. Harvest is in full swing in Australia and growers are working to get a bumper crop into the bins and crop prices remained strong.
Following harvest, the weather outlook is for favorable rainfalls, which could set Australian farmers up for another successful season. Potash prices strengthen a global demand is strong, and we maintain our 2020 global potash shipment forecast at 65,000,000 to 67,000,000 tons. With increased consumption in all key regions, including China, the market conditions have tightened significantly, and we are taking domestic orders. At $30 per ton above our summer fill program. Reports indicate that most of the major suppliers are sold out for the rest of 2020.
Campatex will not place product into China warehouses after October 30th contract expires, and other key markets are on sales allocation. We believe that potash reached floor levels early in 2020. For nitrogen, We believe there was little growth in global demand this year due to the macroeconomic impacts of COVID-nineteen. This significantly reduced industrial demand, which we expect has delayed the recovery in nitrogen by about a year. However, strong urea demand in India and Brazil combined with lower supply from China has provided the market with stability and the recent increase in natural gas prices, especially in Europe, should help support global nitrogen pricing.
Ammonia prices have also firmed over the past few months, and North America urea prices are likely to rise to close the gap against global benchmark pricing. While there is still some new nitrogen capacity coming online, The regions where most of this new capacity is located have encountered significant delays or have low historic operating rates. With limited new supply after 2021, growing demand, higher global energy prices, and an expected recovery in the global economy, we expect the nitrogen market to tighten over time. Nutrien expects to lead the next wave of innovation and stainability and agriculture. And in the first half of twenty twenty one, we will lay out our climate targets and commitments, which include tools that can fundamentally change sustainable agriculture.
We will provide more details on this at our Investor Day on November 30, and we encourage you to sign up for this on our website. As we look at to 2021, we believe the fundamentals for our business are strengthening. And while we execute on closing out a solid 2020, we see compelling drivers for improved results across our businesses in 2021.
Please limit yourself to one initial question and you may then rejoin the queue after. Our first question is from P. J. Juvekar, Citigroup. Your line is open.
Yes, hi. Good morning.
So a
quick question on phosphates. You took a write down in phosphates due to structural oversupply. When you take a charge like that, do your auditors make you look at sort of the next 5 year outlook And there was a Cbd case filed by a competitor which led to higher US prices. Did you take in that into consideration? Can you just talk about the timing of this charge and how do you the outlook that led to it?
Yes, good morning, P. J. So, Pedro, our CFO, can answer your questions. Go ahead, Pedro.
Thank you, Chuck, and thank you. So, of course, our auditors look into that. We do very frequent reviews of all of our assets. There was a certain schedule for this. I think the impairment was triggered by a review with the board of our long term outlook, for FOS prices, and that was corroborated with a number of different, outside sources as well.
So it was not only a, inside forecast, but also probody by outside sources. So, we could see that the values we are carrying now books were no longer supported by those prices and margins into the future.
And just quickly, I know you're going to talk about your climate goals in next at your Analyst Day, but We're just wondering, you know, some of your competitors have taken steps with blue and green ammonia and was wondering if you have any initial thoughts on that. Thank you.
Yes. We we do, of course. So so look, our our ultimate goal is to be a leader in ESG globally. And for that, we we have some very big plans that we will start to introduce to the marketplace at our Investor Day. But here's just a quick preview.
So we, we've been working, of course, on, on a lot of our, our digital tools. And we think we now have, an and toolkit, probably the best in the industry, to really change the way agriculture is fundamentally conducted on the farm. Now the starting point for that will be, of course, our our own footprint. So just to your specific question on nitrogen, yes, we are looking at our nitrogen footprint and our product slate. What I'd say is even if you look at our product slate today, a third of our ammonia sales today would be from low carbon.
So if you use the phrase blue ammonia, about a third of our sales would already come from that. So we're already a leader today in low carbon ammonia We are looking at green ammonia, like, like, every major player in the industry, and we're working through the technology and the economic issues. And
The next question is from John Robert with UBS. Your line is open.
Yes, Chuck, I think I could not hear part of it. Are we both open PJ? Operator, I think we may have lost Nutrien.
Okay. Let me start by going to standby while we reconnect the audio. Sorry for the delay there.
Operator, can you still hear me?
I'm able to hear everyone else. It sounds like we have just lost the one speaker line.
An operator, is my line open as well as PJs?
Nope. It's just your line, sorry. Let's open at the moment.
Funny because I can hear PJ.
Okay. So we'll just have a run standby. Looks like we're just having a little audio difficulty. We're just gonna put the conference on music hold, and we'll resume in just a moment. Again, my apologies.
Hi, everyone. I hope you can hear me now. I'm not sure what happened. We got dropped there. So I'm gonna ask Chuck.
He had a great answer on ESG, so I'm gonna ask him to repeat it. TJ. So go ahead, Chuck.
Yes. Sorry about that, PJ. We had a bit of a technical issue when the call was dropped. So, hopefully, everybody can hear me now. Then I'm not sure how much you actually caught, but but, look, obviously, we have, big plans to be leaders in, in ESG and specifically around the whole nature of climate change and sustainable agriculture.
And and for us, you know, from a nitrogen perspective, we are looking at our footprint and our product place. And if you look at our existing product slate today, about a third of our ammonia sales would be considered to be low carbon So you can use the phrase Blue ammonia if if that's what you're comfortable with. And today, we would be a leader in in Blue ammonia production. We are looking at green ammonia options. So, you know, we're working through the technology and the economic issues.
And at the right time, we'll have more to say about that. But that really from a from an overall climate change impact perspective, that's just table stakes. If you look at how new is structured probably, you know, different than other our other peers is we're very uniquely positioned to really change what happens on the farm because of our integrated business model. And that's really our objective is we wanna and we have been investing significantly in building tools and technology to help farmers really sequester carbon and to monetize that. So we think we've built just a phenomenal product slate right now, and and we'll be talking more about that, of course, soon.
And our overall goal is just to help farmers sequester carbon and to monetize that because that's really how agriculture needs to evolve over time. To help with climate change. So that's a bit of a preview of what we plan to roll out, on November 30th at our Investor Day, and I'd encourage you all to participate.
The next question is from John Roberts with UBS. Your line is open.
Thank you. Last quarter, Mosaic was talking about the potash market entering a new up to up phase here. While Nutrien's comments last quarter, I think were much more restrained. Does another quarter of sequential improvement make you more optimistic than you were last call sounds like you're pretty optimistic about 2021 overall.
Yes. Hi, John. So, look, we're certainly more optimistic overall, at the end of the third quarter than we were at the end of the 1st and second quarter. And it's for the reasons we outlined in the prepared remarks. You know, we've seen crop prices rally.
You know, 6 months ago, we were talking about sub $3 corn. Now we're talking about $4 corn. Inventories have tightened. And demand around the world for crops, is is, increasing substantially, including in China. So we are feeling better and certainly, more confident as we as we enter 2021.
Now specific to potash, Yes. I I would say, look, if you look at overall the potash fundamentals, they've improved throughout this year. Certainly, when we think about demand, demand is up about 2,000,000 tons. That would be our guest today. So that that has really been a a nice event in the industry.
And we think 2021 demand will continue to grow. We also think that globally inventories are, are where they should be at this time of year. And so what we think will happen is that you're going to see the potash market continue to grow. There there is a little bit of more new supply that needs to come to the market, but the growth should easily absorb that. And if you look at Nutrien's position, you know, we said very clearly on the prepared remarks that Capitex is not shipping product into China now that the contract has expired.
We do believe that inland inventories are low in China that they need the product. And potash domestic pricing in China is quite a bit higher than the contract pricing. So all this bodes well, I think, for a good contract negotiation as we enter 2021. And overall, I think we're seeing demand, not only in China, but in all the core markets for potash. So, yeah, we're we're feeling a little bit better about the potash market.
And for us, are also focused on our costs. So another quarter of $52.53 cash cost, it shows the integration that we've done since the merger and the investments that we put into the potash business. And I think we're well prepared to continue to focus on low cost and as the market grows, we'll be able to put more tons into the market at lower costs. So we like that position as we head into 2021.
The next question is from Jeff Zekauskas with JP Morgan. Your line is open.
Can you let us know what the capital expenditures are for the retail business and whether they change very much over time? And secondly, you're differentiating retail more and more. It's now 70% of the revenues of the company. Do you ever revisit the question of whether retail should be separated to increase shareholder value?
Good morning, Jeff. So I'll have Pedro talk a little bit about CapEx and then I'll come back and answer your second question. Sure.
Thank you.
Go ahead Pedro.
Yes. So in relation to CapEx, we of course guided between 1 and 1.1 for sustaining capital. A good portion of that is it's actually NPK. The retail is a bit less and this year has been coming a little bit lower the normal due to COVID restrictions where we couldn't do some of the turnarounds and, because we couldn't crowd some of the spaces that we had for that. So we are trying to recover some of that next year.
We're guiding to be approximately $1,200,000,000. In terms of investment of capital, we are still leaning towards more retail more digital and looking more at Brazil. So that continues to be the preference in terms of capital allocation for our investment capital.
Company is structured. So what I would say there is we we do look at, all of our businesses. We look at the portfolio. We're constantly optimizing, our our overall portfolio. And and when it comes to the specifics around the the integrated model, we actually look at that with some frequency.
And we monitor the the the sum of the parts, of course, as well as other valuation, metrics that we have. And and it's not only, the management team that does this. We we put this in front of the board with some frequency just to ensure that we've got the the right strategy with the right structure to drive long term shareholder value. What I tell you right now though is that when we look at the the market conditions to volatility and how our company has performed relative to other players in the crop input space. We would say that the integrated model has has shone through and that if you look at our free cash flow and our earnings, we've been a much more stable investment.
Than many of our peers because of the way the company is structured. And then if you look at how we've allocated capital, and the the reason we have the dividend policy that we have as Nutrien is because of the integrated model. And and at this point in in the in the market, whether it's the economic market or the the industry that we're we're operating in in terms of crop inputs, we have a really attractive dividend policy. It's very stable. It's growing.
And with interest rates the way they are today, it's a very attractive investment for shareholders. And many of the shareholders that I talked to love this model where at the bottom of of our cycle, which is where we think we are today, shareholders are getting paid a very healthy dividend to to wait for the market to recover, which we hope to now is on our doorsteps. And then as the market does recover, we still have significant leverage to the upside So the integrated model, I think, has been proven to show that we have, less downside risk and still significant leverage to the upside. And I think most shareholders would agree that that that is an, an, a unique combination, for companies in the material and in industrial space.
The next question is from Chris Parkinson with Credit Suisse. Your line is open.
Great. Thank you. I just want to drill down a little bit more on the potash front. It does appear that certain markets are actually really beginning to turn throughout Asia. You know, and it appears that you're confident in rebound in China.
So just in your overall analysis of the complete region heading into 'twenty one and 'twenty two, coarse grains, oilseeds, and even on a forward looking perspective F and V, how should we be thinking about the regional demand dynamics? And how does that filter into your general views, which you're articulating going forward? Do you think there's upside to your estimates? Thank you.
Yeah. Good morning, Chris. So maybe I'll have, Ken Sykes, our our leader of, our potash business. Just quickly go around the world for you and give his perspective. Go ahead, Ken.
Thank
you. Good. Thanks. Great. Thanks, Chris.
And thanks Chuck. Yes, so Chuck talked about China and why we're confident there. And that's owing to Yes, some inventories that are a bit above 3,000,000 tons at the moment, but we're seeing strong demand there into the fall. And, it's reflecting the domestic price. Low inland inventories as well.
So as the lowest potash price market in the world, we're confident about a good contract negotiation in 2021, and we expect demand as usual to be robust in China. India, we're going to end the year with lower inventories year over year than we've seen lower than historic averages. India's been a great year, and into the fall season with their curry crop. We expect that Indian farmer economics will continue to be very good. And so we expect strong demand in India in 2021 as well.
Indonesia and Malaysia, you can see that the palm oil price is now north of 3200 ringgit ton, and that bodes very well for the plantation owners in terms of potash affordability. So we're expecting growth in Southeast Asia into 2021. The Brazilian market continues to be very strong as well. And again, in 2021, we expect some growth there, but the, the, Farmer Economics And Farmer Portability for potash are just excellent in Brazil. And then finally, in the U.
S, we're having a very strong fall into the U. S. We have great weather, great farmer affordability, and we're seeing strong potash application into the fall. And so that tees us up well for lower inventories across the board. And then into 2021, expecting, yes, demand growth, as Chuck said, and, and, favorable pricing as well.
The next question is from Jacob Bell with CIBC. Your line is open.
Good morning. So you trimmed retail EBITDA guidance for the year. Can you talk a little bit about what's driving this? Is this just margin pressure? I know you talked about competitive pressure and crop protection.
And then if that's the case, is this the new normal?
Yes. So Jacob, I'll talk about guidance and then Mike can give you Mike Frank can give you his perspective on what he sees going forward towards the end of the year and then into 2021. So Look, overall, what we did with guidance is we just took the top end of the EBITDA guidance range down. There were some minor tweaks in potash and nitrogen. Potash was raised modestly because of higher volumes, and and prices as the last question was addressing.
And nitrogen was lower just modestly because pricing and then slightly higher gas costs. Our our biggest change in our in our guidance overall was to retail. And and that is a bit unusual for a Q3 in retail. But I think that this year, what we've what we've seen is if you look at why we we lowered the guidance in retail, there there are 3 drivers to that. The first is is just the lower planted acreage.
So, you know, the USDA was still tweaking their numbers as of latest of October. So, you know, we we were expecting, and I think many others would would be expecting a higher planted acreage in in throughout the year. And and we now we know that, we had a softer, Q3 because of that. But also, crop protection application in in the third quarter was lower. We had drier weather in the corn belt and not a lot of pest pressure.
So so that was another driver. And then the the last topic which which I did introduce in my prepared remarks, which is we have seen, some deflationary pricing in the crop protection market because of some competitive pressure in the upstream, competitors. And that, you know, when we combine all that, what I what I would say to you is that we we certainly that most of this is just Q3 specific. But I'll have Mike give, his view on prop protection as we get through the rest of this year and in the 2021. So go ahead, Mike.
Yes, thanks Chuck and thanks Jacob. Yes, so look, if you look at our 20 20 crop protection margins. Obviously, they were strong through the first half and deteriorated in Q3. And as Chuck just mentioned, I mean, a big part of the Q3 impact was the fact that there was lower, especially in the Corn Belt, insect and disease acres for us to treat the channel ourselves included were loaded up with inventory. And so it ended up being a hyper competitive market.
And we saw the margins deteriorate because of that. I think that That's a that's a unique, event, this year. We haven't seen that in the past. And so I wouldn't expect that to repeat. The other impact that we're going to see through the whole year is just the impact of Ruralco on our crop protection margins.
Like if we look at the year to date rural coal crop protection margins, they're about 13%. You know, and typically our Australia margins are close to where we have globally. They're in the 20% to 22% range. So with Ruralco, we had to sell off the existing inventory And, the purchase commitments that they made for the 2020 season, we're pretty much through all of that inventory. And so as we look towards 2021, We'll also have Nutrien Ag Solutions, costing across our whole Australia portfolio.
And so that's also going to be constructive to margins as we look forward
Our next question is from Steve Byrne with Bank of America. Your line is open.
Yes, I was curious as about whether there's anything structural, about your phosphate assets that led to the write down. Is there just potentially subscale at Aurora and White Springs, the or any technical issues there? Or do you just see the recent run-in global prices is unsustainable?
Sorry. Sorry. Operator, since we're having technical issues again, could you put the call on hold?
We're back to back in
if you can just repeat the question for us. Sure.
The question was about your phosphate assets and whether there's anything structural or technical or scale related at White Springs in Aurora that contributed to the decision to write down the assets or is it solely a longer term outlook on phosphate supply and demand that might suggest the recent run-in prices is unsustainable?
Well, look, if you think about what we've done since the merger, in our phosphate business, part of the synergies that we delivered through the MOE was related to optimizing the phosphate businesses that the 2 prior companies had. And so we moved from three facilities to 2, we increased operating rates lowered our costs substantially and all of that helped. And thank goodness that we did that. What we what the reason for the impairment to being very candid though is that we have a view that that the market has a lot of fundamental oversupply in low cost jurisdictions around the world, and that supply will continue to increase. And so when you look at our footprint in the United States, these assets are strong regional players, but they're not world scale.
And so when you put all of that together, you know, the way the process is conducted by, by our finance organization with our outside auditors, that's what triggered the impairment. When we look at this, from our focus now for our phosphate business is really we're going to continue to drive our costs down and diversify the product slate, which we've done over the last 3 years, and we'll continue to look for opportunities. But this business now, I think when we look at it, we just fundamentally believe that the long term outlook for the phosphate business is very different than say the potash or the nitrogen business. And that's taking all of this into consideration is where we landed. Next question.
My apologies. Our next question is from Joel Jackson with BMO Capital Markets. Your line is open.
You're talking about palm oil. So if some of the renewable diesel, forecast, bullish forecasts are correct and next year or 2, you would think that that would lead to a lot higher palm oil prices and that should lead to a lot of potash demand in Indonesia, Malaysia, Southeast Asia. You spoke how things are improving upon all sides, but I think it's been surprising that potash prices really haven't risen in Southeast Asia. So can you speak about some of that long term bullishness, does that play out in potash? When does it happen?
Anything you could help you could add would be helpful. Thanks.
Yes. Good morning, Joel. So what I'll do is I'll have Jason Newton, our chief economist just address the Palm Oil dynamic, and then I'll give you a couple comments on the broader potash industry. So go ahead, Jason.
Good morning, Joel. Yes, we've seen a combination of supply and demand actors, really helped out the palm oil market since bottoming in May, so up around 50% since that time. Part of it is supply and that migrant labor hasn't been able to move into Malaysia, which has had some negative impact on on production and availability from there, it's also demand driven. So we've seen, strong demand in China, as mentioned, India demand has been strong as well. And then we also have the biofuel dynamics, which I think is supportive as we look longer term.
And if you look at how the prices have performed, in that market, it always lags. What's happening in other spot markets, especially the granular spot markets in Brazil and the U. S. And so we never saw prices go as low in Indonesia, Malaysia as they did in Brazil. And they haven't had an increased by the same amount.
But if you look at the relationship where they are today versus the prices in Brazil. It's more along the lines of where it has been historically. And I think given the fundamentals in that market, as we look toward late, 2020 and into 2021, there's certainly a lot of fundamental support for prices in that region.
Yes, Joel. So then I've covered the potash, our view of potash, I think pretty well globally from a fundamental perspective. The nuance then, if you go back to China, what we're seeing in China though, I think in its early days, but we think there's some really interesting structural changes happening there. There's good demand for greens and oilseeds. You can see corn and soybean imports well above the historical levels.
And China inventories have been depleted. So when we look at this and we see China pricing for potash, but also for food, it's much higher than the global benchmark prices. So we what's happening is if you look at African swine fever, which was a major headwind, for the industry last year. Now that's becoming what we think a structural tailwind because as the Chinese rebuilt their hog herd, they're doing it with, what I would call professionalism and commercial aspects around the world. And so they're bringing in professional commercial feed lots, which are going to use a lot more crops.
And I think that's a safer way to grow these animals, but it's also, I think, going to drive I think a change in demand for crops around the world. And so all of this is positive, I think, for crop fundamentals, but also for MPK. And so that's why you've noticed maybe a slight change in our, in our views now is that we've been watching this for the last I'd say 6 to 9 months. And there's still some more to kind of understand as this unfolds, but we are more today than we have been in the last 2 or 3 quarters.
The next question is from Andrew Wong with RBC Capital Markets. Your line is open.
Just want to ask a question on nitrogen. I don't think you covered much of that on the call. Regarding the nitrogen cost curve, it looks like there's a lot of move parts here with the energy prices, oils weak. Not gas prices are rising globally. Coal prices look are going up in China.
Just what's your outlook for the cost for over the next 6 to 12 months? And then more specific to, Nutrien, Obviously, Eco Gas has gone up. But you still get a pretty good margin there. And could you just maybe give us a little bit of preview into 2021 a bit on how that segment might play out? Thank you.
Sure. Good morning, Andrew. So, look, I'll stay at the high level and then we can unpack this, if you'd like, or we can take it offline. But what we've seen in the nitrogen fundamentals is sort of that the recovery has probably been pushed out by about a year or so that we had originally thought. And if there's one part of our business, but all the ag industry that has been impacted by COVID, it is a nitrogen industry.
The rest of our businesses have not been really overly impacted. There's been puts and takes around, crop mix and things like that. But the nitrogen industry, because part of it is industrial and it goes into the general economy, what we've seen is that global demand overall for nitrogen is going to be up modestly, I'll call it flat. Good demand growth in ag, but, of course, declines around the world for that was intended to come online late last year and then earlier this year, that also has been pushed out. So as we look at 2021, our view would be that we're going to see growth in nitrogen next year in ag, but also in the industrial complexes, the broader economy recovers.
The new supply will come online. And what we would say is that 2021 from a nitrogen perspective is probably more balanced. For 2021 than we had originally thought, as compared to potash where we see very good demand growth in potash. There is a more some supply coming on in potash, but we think that the supply demand in potash will tighten next year. And we think that nitrogen, it will be more balanced within good growth in 2022 and 2023 and beyond that.
The next question is from Duffy Fischer with Barclays. Your line is open.
Yes, good morning guys. Question just around China in particular, you had mentioned that potash prices internal are higher than global prices. I you can see the same thing for corn. And it's been a while since you've seen that kind of delta where there's more value and ag inside of China. So maybe if you would take a first cut across NP and K, whether they're a net importer or net exporter, how you think that net import port number changes next year relative to this year for China.
Okay. Good morning Duffy. I'm going to have Jason Newton just go through that for you.
Good morning, Duffy. Yes, it's a good question. Ken, I think if you look at the ag outlook, in China, it's definitely a lot stronger, than it has been in some time. And we think that supports fertilizer consumption within China. And I think if you look at the numbers for this year, we've seen that across all three in P and K.
So looking at the export balances, we expect Chinese urea exports this year will be in the 5,000,000 ton range. So roughly in line with where it was a year ago. And as we look toward next year, the combination of increased demand domestically and some continued supply reductions in the domestic market. We'd expect that domestic or the exports will decline. So probably in the range of a 1,000,000 ton decline in Chinese exports.
Of urea in 2021. Fosfate, we've already seen lower exports this year and we'd expect continued that same trend of increased consumption domestically in 2021, which should, reduce the export surplus there. And then on the potash, side, we had seen increased domestic consumption in 2020. Shipments are down we look toward, 2021 and we expect modest increase in shipments, depending on what happens with imports as we get into late this year, but strong domestic consumption growth again in 2021 in China.
The next question is from Vincent Andrews with Morgan Stanley. Your line is open.
Thank you. Good morning, everyone. Just want to drill down a little bit more into the natural gas equation on the AECO Henry Hub piece. Just looking at Slide 21, we've always talked about the AECO managing that chart generally shows it, but more recently, since maybe the end of last year, that advantage has narrowed. And just curious what you think is causing that?
And then if we do see a further spike in Henry Hub, whether you'd anticipate AECO following it or not. Thank you. Okay, Vincent. Good morning. Ralph Sully, our head of nitrogen and phosphate can take that question.
Go ahead, Ray.
Thanks, Chuck. So maybe just to reiterate, something as Chuck mentioned, globally, we're seeing prices increase we're seeing LNG come up that's pushing European gas prices up to a more natural position, which is pushing them to the right the curve, AECO and Henry Hub were up. We still think that we'll see an advantage of AECO through next year, we it there's a lot of production available there, at the current prices that you see. So we think it's it will be advantaged to Henry Hub. Likewise, I think there's some uncertainty around Henry Hub at the moment just because of the election But despite that, there is a lot of capacity available in that $2.75 to $3.25 range.
So again, Henry Hub and A. K. May come up a little, but the amount they come up is capped compared to LNG prices and prices in the rest of the world. And so we think footprint will have a pretty advantage position to some of our competitors that have enjoyed low gas prices recently.
The next question is from Ben Isaacson with Scotiabank. Your line is open.
Thank you very much and good morning. You guys have given a very clear outlook on your views, with respect to nitrogen over the midterm. At least from a non controllable point of view, when it comes to controllables, what is your strategy for nitrogen? You've talked in the past about debottlenecking, what about product mix shifts or lowering costs or potentially offshore investments, consolidation, etcetera?
Good morning, Ben. Rafe, do you want to take those questions, please?
Yes, no problem, Jack. So, Ben, look, on the controllables, there's a number of things that we're focused on here. The first is starting with big push in the last 3 years to improve the reliability of the equipment by making sure that our sustaining capital is focused on things that matter. You've seen that come up now. We're on track this year to have a, to reach a high watermark around that, 93 94% capacity utilization.
We're going to try and push on beyond that in the next few years. We also have invested about $300,000,000 in increased capacity that has allowed us more flexibility, with downstream products. So that's allowed us to move the ammonia molecule into urea and UAN, which is served as well, and also ammonium sulfate. We have identified additional, what I call brownfield expansions. These are very low costs compared to greenfield expansions.
And these brownfield expansions are focused on again, product mix, flexibility, on a regional basis. So, looking at the individual regions route and where we need that extra flexibility. There are also focused on energy efficiency. So again, and reliability, and so you should see us continue to be able to improve the reliability of the equipment we have and also get a little more flexible, I mean, our product mix that will allow us to handle some of the variability we see in the application windows.
The next question is from Adam Samuelson with Goldman Sachs. Your line is open.
Yes, thank you. Good morning, everyone.
So the question is on retail. And really, as we think out to 2021, the crop price environment and the farm income environment is considerably more favorable, maybe a little more skewed to soy than corn planting at current prices, but just trying to think about the Nutrien operating leverage to that in retail next year. Do we see a slowdown in OpEx growth as we kind of lap Ruralco, or is there an initial step ups in investments in digital and Brazil that mean that we could still see OpEx grow as fast or faster than gross profit next year? Thank you.
Good morning, Adam. Mike, do you want to take that question?
Sure, you bet Chuck. Good morning, Adam. Let me talk about OpEx, firstly, this year, the vast majority over 90% of the OpEx increase this year is coming from acquisitions. In particular Ruralco, but we also had a couple of medium sized acquisitions in Brazil. And so that's where we're seeing OpEx growth this year.
Right now going into 2021, we're we're we don't have those big acquisitions at this time that are going to have that same kind of impact into our 2021 year. And so I would expect a more stable OpEx growth going into next year, probably less than inflation. Look, in terms of grower sentiment, you're right, whether it's the U. S, obviously, it was early harvest, good yields, strong prices right now and good government support programs. And we're seeing that play out.
Our seed bookings are up We had a we've had a record October from a ton standpoint in terms of getting applications fertilizer on the ground. And we've also seen a record number of soil samples come into our Waypoint analytical lab network. And so we are seeing growers really starting to think about how do they make investments into the 21 crop, that are going to really be focused on maximizing yields. Course, it's the same in Brazil, grower margins are extremely strong. And in Australia, they're just about to harvest what looks to be a really good crop and, and moisture conditions are once again looking positive going into the 21 season.
So across the board, I would say, you know, all those things are setting up right now, you know, for really strong growth fundamentals. And when that's the case, you know, there is a positive impact, of course, on our retail business, you know, from product sales, margins. And, you know, obviously, there's a lot to play out in terms of planted acres for 21 between corn and soy, but as Chuck mentioned in the prepared remarks, there was about 8,000,000 acres that didn't get planted this year, because of prevent plant. And so again, I think as we're looking at the 21 season, we're expecting a lot of those acres to come back into play in the U. S.
As well.
The next question is from Jonas Oxgaard with Bernstein. Your line is open.
Hi, good morning. We talked a lot about China and the, the outlook for, for pretty strong potash applications, but Are you thinking about China differently in the strategic sense this upcoming year? I mean, it feels like we're repeating the same story every year of sending too much volume to China and then negotiating from a position of weakness.
Yes, so good morning. Look, I think, the way we think about this coming contract with China is fundamentally different than what happened over the last couple of years. So, if you recall, we signed and we being Capitec signed a contract only till October. So it wasn't even 12 months last time. I think we made it very clear that we we fundamentally believe that, the contract price was not sustainable at that level.
And Capitex is now not shipping any volume after the contract in October. So I think that that is a very important differentiation and distinction And then if you look at how we're forecasting our volumes into 2021, and we'll talk more about that, as we enter the new year, we don't, we're not relying on China for a lot of volume early in 2021. And then the comment that we've already made couple of times today, the China domestic potash price is much higher than that contract price. So in my eyes, I think we have set up a different dynamic. Now this is always going to be a tough contract negotiation.
People are constantly referring to what they can see at the port inventories. And that's the most visible and transparent numbers. So the Chinese understand that. But from my perspective, what I would say is that I believe that there's only one potash prices are going to go in China. The question is just by how much.
The next question is from Michael Tupholme with TD Securities. Your line is open.
Thanks. Good morning. I know you feel very about the robustness of your digital platform. I'm just wondering if you can talk about the strength you've seen in that platform. You've, you've well exceeded the target put out.
And I'm just wondering if you can talk about what you think it is that's allowed you to do that and how you think about that going forward.
Sure thing. Mike Frank, will you take that question, please?
You bet, Chuck. Yeah. So, Michael, obviously, the platform has exceeded our expectations this year. And in terms of revenue that's come in on the digital portal, obviously that was aided by COVID where we got into the March busy season, and we wanted to make sure that both our employees and our customers stayed safe and healthy. And so we really turned to the digital tools to and leverage them in that window.
But the good thing is we've seen that continue through the third quarter and even in the early start of fourth quarter. So look, I think the benefits, there's really 2 big categories benefits that we're seeing. Firstly, it's around efficiency. So, you know, our best sales agronomists that are at capacity, you know, doing it the old way with these digital tools, they're able to increase the number of acres that they can serve by probably 25% to 40% just because of these tools allow them to reach their growers and help their growers make decisions in a more convenient way. And we're also seeing less duplication of kind of back office work.
And so there's also a leaning down of the administration that we're seeing and we can anticipate as we do more and more transactions on the digital portal and get more payments through the portal that it's leaning down our administration. The other big area of benefit is really, I would say, both grower convenience as well as our sales agronomist convenience. And we're seeing, for example, growers that are engaging online are churning less They're more likely to buy multiple shelves from us. And so we do see this as an avenue. I think it's early days, but it's an avenue for us to
Thank you. Our final question is from Michael Piken with Cleveland Research. Your line is open.
Just wanted to go briefly through the seed and crop protection market. You mentioned that that's causing some pressure in terms of your retail margins. How do you see that evolving into 2021? And maybe you could talk about kind of the competitive dynamics of seed a little bit right now with the price cards now out. Thanks.
Good morning, Michael. Mike Frank?
Yes, Michael. So look, I
think we already talked about the crop protection market and the impact this year, in particular, the impact of Ruralco and the mix effect that Ruralco had on our overall margins as well as just they're very competitive Q3 that obviously lowered our margins in the U. S. In Q3 as we sold through the inventory based on the smaller market. Now I would say on the seed side, look, if you look at our margins year to date, our margins are strong. On seed.
They're strong because we've performed well with our proprietary products, seed portfolio. And I would say we've never had a stronger proprietary product seed portfolio than we have going into the 21 season. So we feel really good about that. And right now, again, I think based on positive growers sentiment, growers are focused on the seed that's going to help maximize yields. So that they can take advantage of, you know, $10.10.40 soybeans or $4 corn.
And so we're seeing actually in soybeans, probably a trading up, less runner birdie 2 soybeans, less runner birdie by Liberty Linked Soybeans, And we think that our overall ratio of both on list and extend and extend flex beams are going to be up this year. And so it's a competitive marketplace, but again, growers are focused on making sure they can get the best seed. And really it's a salmon on the corn side. You know, we're not seeing extraordinary, competition, I would say right now in seed. I mean, the market is focused on getting the best seed, making sure that we have inventory of it.
And that's where the focus is right now. It's more so there than it is on, I would say, on ICE equation?
So it's Richard Downey here. Thank you for everyone who dialed in. Apologies for the technical difficulties this morning, but, we are available for any follow-up questions that you may have. Thanks for joining us. Have a good